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Better Buy: CenturyLink vs. Verizon

By Rick Munarriz - Jan 31, 2020 at 9:00AM

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The telco with the bigger dividend isn't necessarily the smarter play here.

Putting CenturyLink (LUMN -1.99%) and Verizon (VZ 0.17%) in the same ring to duke it out doesn't seem like a fair fight. Verizon is one of the two largest wireless carriers in the country. CenturyLink is a struggling telecommunications provider, fighting for scraps that the industry titans leave behind.

Verizon isn't exactly a market darling. Revenue has risen by no more than 4% in each of the past three years. But it's a speed freak compared with CenturyLink, which has posted declining revenue in five of the past seven years. The two years in which it did manage to shell out positive top-line spurts, it was entirely the handiwork of its roughly $25 billion acquisition of Level 3 in 2017.

A CenturyLink employee at a company showroom with ads for its products and services.

Image source: CenturyLink.


Rolling with the punches

Verizon closed out 2019 with its largest wireless net adds during the fourth quarter in six years, but operating revenue only managed to climb 1.4% for the period. Gains on the wireless and consumer front are being weighed down by the logical fade of its wireline segment. Adjusted earnings also clocked in roughly flat with the prior year's showing, just missing Wall Street's profit target for the first time in more than a year.

Verizon is making big investments in 5G and expanding into other services, but it's still trying to run a tighter ship. It's now more than halfway through completing its 2018 plan to achieve $10 billion in cumulative cash savings by 2021. It sees consolidated revenue and adjusted earnings-per-share growth accelerating slightly in 2020, rising in the low to mid single digits.

CenturyLink isn't faring as well. It doesn't report its fourth-quarter results for another two weeks, but revenue has posted single-digit declines through the first three quarters of 2019. Organic growth hasn't been impressive now that we've lapped the Level 3 acquisition. 

It's not all bad news at CenturyLink. It posted sequential top-line growth in the third quarter, and it's coming through with improvement in margins on some fronts as its cost savings play out. But it did also fall short on the bottom line in its latest reported quarter, and free cash flow is still stuck in reverse. 

The only category in which CenturyLink comes out ahead in this battle with Verizon is when we look at shareholder distributions. CenturyLink's yield of 7.2% is far meatier than Verizon at 4.1%. However, Verizon has come through with 13 consecutive years of increased dividends. CenturyLink cut its dividend by more than half last year. It's showing some signs of improvement, but the nod here for the better buy has to go to the steadier and more successful Verizon. Even a dividend investor can't live by high payouts alone. 

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